Wednesday, 07 September 2011

The more you tighten your grip, Woolies and Coles, the more brands will slip through your fingers

my return from a rather long winter blogging break has been greeted with the glad tidings that some brands have finally chosen to take a stand against the big two Australian supermarkets. Adnews reports today that Glenn Cooper, boss of Coopers Brewery has described Coles and Woolies as being the "killers of Aussie brands". Cooper went further:

“Blatantly, Coles and Woolworths are not brand builders, they are brand destroyers … it’s harsh, but they are not about building brands, they are just about turning over quickly.”

SMH only last week reported that this is an opinion recently echoed by no less than Heinz' chief financial officer and executive vice-president Arthur Winkleblack. in a briefing to US analysts on the company's first-quarter earnings, Winkleblack specifically name-checked the Australian supermarket sector and blamed them for an erosion of its margins. sentiments echoed by Heinz' chairman and chief executive Bill Johnson:

''There is no doubt that in terms of retail environment, the Australian market is the worst market, and ultimately the people that will pay the price over there are the consumers because products will ultimately be devalued to address the price points that customers are asking us to address ... So the consumer is going to ultimately be the big loser in Australia.''

the supermarket's argument is manifold and includes the rationale that this is all in consumers' interest - a Coles spokesman, in response to Winkleblack's comments, stated that "We agree with Heinz's comments that companies need to be competitive to ensure the best outcomes for customers."

but consumers don't benefit from Supermarket competition. the concensus of an April opinion piece in the Sydney Morning Herald was that consumers - if they see any benefit at all - see it only in the short term. Academic Angela Paladino commented that:

"Price wars squeeze out marginal players and change the composition of the market. Here fewer competitors seek to enter an unattractive market that is dependent on low price for success, and smaller competitors exit the market as a result of the inability to make a profit. Others may be taken over, for example the 2009 acquisition of Macro Foods by Woolworths. This has a long-term impact on consumer choice, with shoppers left in a market comprised of fewer players with greater power."

Nick Stance, Chief Executive of Choice agreed:

"The market shares of Coles and Woolworths allow them to negotiate hard with their supply chain. In fact many suppliers report they have little choice but to accept terms offered even if that makes their business barely viable ... Sometimes the benefit of lower costs is passed on to the consumer through promotions, but promotions are temporary and do not in themselves create sustainable competition ... The ''price war'' is a phoney conflict, not least because the big players usually match each others' prices."

there are only two winners in Coles and Woolies' Store Wars; and that's Coles and Woolies. brands have and continue to exist at the mercy of these distribution Death Stars. now Coopers and Heinz have come out of the supermarket closet. it's just two brands. but that's two more brands than a few months ago.

Coopers and Heinz's coming out is important. brands standing up to Coles and Woolies is important, because the dominance of Coles and Woolies is hurting brands ... not least in expectations of media investment...

I've sat in more meetings that I care to recall where there have been two invisible seats at the table. in discussions where the spectre of supermarket's expectations for media investment loom large over marketers, marketers dependent on these two Death Stars for significant - and often increasing - distrutions volumes.

it's a sweeping generalisation to say that Australian brands are too dependent on the broadcast interruption model (of which TV spot advertising is the main solution) for their marketing needs. never-the-less its a generalisation that I believe is true. a reliance on this 20th Century marketing model isn't just down to the pressures and expectations of Coles and Woolies on media spends, but they sure as hell play a very significant part: too many brands over-invest in broadcast interruption because its what supermarkets want and expect to see on those brands' media schedules. supermarkets' expectations are holding back brands' media innovation potential.

but the effect and influence isn't limited to consequences above-the-line (a term which I hate but I'll run with anyway). prices are down. great. but its not the supermarkets funding this price decrease - it's brands. manufacturers are paying for prices to be down with their below-the-line (ditto) budgets. and because prices are down for good manufacturers will be paying for them to be down ... for good.

The Order of Coopers - owned and earned media curating a community for the brand

what is phenomenal in this context are the levels of innovation that do get out of markets and agencies' doors and into the world. despite the vast majority of bought media investment being diverted to an outdated (and actually never that well proven model), Coopers - for example - have built a hugely utilised online site and community. they are investing in owned and earned media that are building a community with direct links to their brand and business that side-steps the supermarkets' Death Stars.

brands, it would seem, are starting to have had enough. the Supermarket's weaponary have become simply too powerful to ignore. to paraphrase Senator Organa, 'the more you tighten your grip Coles and Woolies, the more brands will slip through your fingers'.

the rebellion, I very much hope, has begun.

full disclosure: I work as a media strategist for several brands that have distribution through Coles and Woolworths in Australia. the above comments reflect my, and my opinions alone. the advice and recommendations I make to brands take these - as well as other - opinions and considerations into account.